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Urban Outfitters: From Hot Styles to Hot Mess

Similar to the likes of troubled Lindsey Lohan or the late Whitney Houston, Urban Outfitters Inc. (NASDAQ: URBN), once at the top of its game, has abruptly fallen down the rabbit hole.

The upscale retailer has failed to assure analysts that it is still a safe investment, as its incredibly disappointing 4Q results still loom in the eyes of investors.

Brean Murray Carret did everything but condemn the company completely in its research report released earlier today.

Throughout the report, Brean Murray Carret questions why new management was necessary for URBN when every issue plaguing the company has remained the same.

“The new post-Glen Cink management team remains focused on new store growth despite continuing weak metrics and is aggressively looking to expand into Asia and other new markets. Management even plans to open a new Terrain and BHLDN bridal store in FY13, which, frankly, baffles us…why spend precious capital on unproven concepts when your core concepts are still under performing? How does this make sense in terms of overall returns?” BMC asked, shortly after reaffirming its Sell rating and $23 PT.

And this is certainly not the only investor taking digs at the flailing upscale brand. ISI Group noted in a report earlier today, “Dick Hayne and others in URBN's revamped management team sounded genuinely upbeat about new initiatives to drive traffic and full-price selling (including greater investments in design, marketing, IT, and e-commerce), but it's hard to feel confident that 2012 will be a comp and margin recovery story given that there are few data points suggesting URBN has seen a sustainable improvement.”

Escalating the sting permeating in URBN's open wound, the web happily combusted today with the news that February retail sales climbed the most they have throughout the past five months.
At this point, one would wonder what the retailer is doing to calm fears presented throughout the morning, but the answer is not completely evident.

According to Goldman Sachs, “Management's commentary does suggest that gross profit trends are becoming less negative after a very tough 4Q, with lessening margin declines offsetting a return to weaker top-line trends (4Q gross profit was down 16%, the worst decline in over 10 years, and we estimate 1Q12 gross profit is trending down in the mid-single digits). This “less bad” trend has the potential to give way to more significant improvement in 2Q/2H12 when the return of key personnel to creative posts (particularly at anthro) has a bigger influence over assortments.”

Clinging to “less bad” trends and opening new stores has left Urban Outfitters on shaky ground over the past few weeks, with investors feeling as though they're holding onto stock with no promise of rehabilitation.